Tuesday, July 10, 2007

5 Charts on Chinese Trade

"You want the truth.....you can 't handle the truth!"

- Col. Nathan Jessep, A Few Good Men

Imagine Macro Man's surprise when he read a comment on Brad Setser's blog suggesting that access to his humble journal has now been blocked in China. He has no idea if this is true or not, and isn't sure what his reaction would be if it is. Surprise, for sure, tinged with perhaps a touch of pride (clearly he is hitting a nerve!) and more than a little sadness (does Col. Jessep really live in Beijing now?) Somehow, however, Macro Man suspects that his little hobby probably doesn't register on the radar of anyone who really matters. Still, if any of Macro Man's Chinese readers (there have been a few) happen to see this post, by all means let him know that he's not blocked!

Perhaps any web access shenanigans were conducted with a foreknowledge of China's June trade data, which was a whopper. The surplus registered at a massive $26.9 billion, a new record and well above the consensus expectation. Some of the surplus may well have been a product of frontloaded activity resulting from the July 1 withdrawal of some export tax rebates (i.e., subsidies), though in that case it was strange to see exports fall from 28.7% y/y to 27.1%. The real driver behind China's surging surpluses, however, remains tepid imports, which in June rose just 14.2% y/y, well below the expected 20%. Could it be that PBOC has actually managed to tighten and that the economy is slowing?
Trends in China's trade with the US are particularly interesting, as we now have data through May (the month of Madame Wu's visit to Washington, you may recall.) There is a clear seasonality to US/China trade, with a peak in the run-up the Christmas season and a nadir around the lunar New Year. Through the first two months of Q2, China's trade surplus seems to have clawed back less of its Q1 drop than has been the case in recent years. Some of this may well represent the inventory adjustment that the US economy has sustained in the first half of this year. Nevertheless, it is remarkable to see that the growth in China's exports to the US has fallen sharply and is now at its lowest level since the last recession.

Eagle-eyed politicians might also observe that the recent peak in China's export growth to the US occurred just before the Chinese revaluation in July 2005 and that the recent deceleration has come as the pace of RMB strengthening has intensified. Indeed, recent trends in import/export growth are likely to reinforce the notion that the China's undervalued exchange rate is exerting a meaningful influence on trade, and thus maintain US political pressure on China for further action.
Moving forward, however, the US may not be a lone voice in criticizing China's currency policy. China's trade surplus with Europe has trended higher on an even more parabolic path than that with the US, and on current trends may even exceed that with the US in a couple of quarters. There's quite a bit of noise in the data, however, and it will be interesting to see how export growth is distributed when the full set of June data is released next month.
A common defense when China is charged with mercantilism is that the country only runs a surplus with noted consumers, and tends to run a large deficit with other current account surplus countries. That argument may be fading. The May deficit with the rest of Asia registered its smallest reading since the last recession and is only a hair from switching into surplus. Observe the remarkable trend decline in import growth from Asia over the past half-decade; it's hard to avoid the conclusion that China has taken quite a bit of market share from its neighbours over the past few years.
One country which still enjoys a trade surplus with China, however, is Japan. Part of this may be attributable to the relative growth of domestic demand in the two countries, and some of it may suggest that the yen is just as weak as the RMB!
Key focus for the day will be Big Ben's afternoon speech on inflation; might he offer some hints on a switch of focus to headline? Inquiring minds (and TIPS holders) want to know!


Charles Butler said...

A bit of noise recently from health departments concerning the quality of Chinese merchandise reaching both European and American shores. On top of the toxic sino-shrimp found in Boston, Spanish authorities have seized brand-pirated toothpastes (Colgate, and the like), of the same origin, that apparently contain something that also removes the plaque from your spleen. Unfortunately for the self-righteous, they were first encountered as giveaways at public health centres in Valencia.


Come the day the day that governments decide to act, they will have all the ammunition they need - also imported.

Macro Man said...

Yes, I think it's safe to say that the quality of Chinese consumable products (Aquafresh! With a new arsenic-flavorued stripe!) has come under serious scrutiny, what with the examples you cite as well as the dog food fiasco.

Then again, do pirated goods get accounted for in trade data anyway? And how much does toothpaste and dog food account for Chinese exports anyways? I can't imagine that either product is terribly labour-intensive to create, unless those movie representations of Charlie Bucket's dad screwing the lids on tubes of toothpaste really represent how that industry works...

AC said...

Another Asian country with trade surplus with China is Taiwan. Do you happen to have similar data on Taiwan? I suspect that in that case the Chinese running a deficit may have a strategic reason (an economic road to peaceful unification).

Macro Man said...

AC, the trends in China's deficit with Taiwan has stabilized over the last couple of years, as China's export growth has been stronger than import growth for most of the last three years. Who knows, though, how much trade there is across the Straits that isn't captured in the data...

Emmanuel said...

Macro Man--it's true. Your site has been blocked in China. You can check via the Great Firewall of China site.

Macro Man said...

Emmanuel, thanks. I'm not really sure how to react!

Anonymous said...

It's easy MM -- Just start writing some good things about China (no more British "Voldemort" mumbo jumbo ...)and perhaps your blog will get "unblocked" for your "good gesture" will get passed around and reached the shores of the China Seas.

Just a thought!
Asian Man

HZ said...

Macro Man,

For Japan I remember looking at its data and see large deficit with Hongkong. So you may need to take trans-shipment into account.

As for charge of mercantilism, it seems to be more a resistance to large changes in its economic policies and a different perspective on time when the government does not have to face election every few years.

Macro Man said...

HZ, good point about Hong Kong. I do think it's interesting though that the deficit with Asia in aggregate has just about closed.

The reason that I write about China in the way that I do is that a Chinese government agent (the central bank) is an active and disruptive participant in the financial markets of foreign countries as a consequence of a domestic policy objective. If China could maintain its exchange rate without recourse to massive FX reserve accumulation, I would have no beef.

Under the current regime, however, China's "right" to set its own exchange rate entails an obligation on the part of foreign countries to accept the exchange rate (and, increasingly, yield curve slope) that China gives it. I and a lot of financial participants have a problem with this, but it tends to get glossed over amidst all the protectionist rhetoric coming out of the US and, to a smaller degree, Europe.

My opposition to China's current policy regime is for pretty similar reasons as my support for the recent smoking ban here in the UK; I believe that when someone's "right" entails an obligation on the part of a disinterested actor, it is not a right as such.

This is not intended to be anti-China site, and I am in no way Sinophobic. I don't write about things that I don't know about, but would appear to be soft targets, such as industrial espionage or links with the Sudanese government.

By the same token, I am also happy to ridicule what I believe is silliness elsewhere, be it short-sighted protectionism in the US or ratings agency narcolepsy .

All I can do is call it like I see it; if you look at the facts and reach a different conclusion, that's OK with me. Ignoring or censoring the facts, on the other hand, is less justifiable.....

Anonymous said...

Macro Man, if you believe your site has been blocked based on the Great Firewall of China alone, then it may not have been after all... I´ve been toying with it for the last few minutes (as I suspect most of you have as well) and a few websites that the Chinese surely haven´t blocked are reported blocked by that site (such as the company I work for, which is as innocuous as any fund managers could be, and probably more so than most).

avinash goldfish

Macro Man said...

Thanks, Avinash. I've had a little play, and the GFWoC site appears to block all blogspot blogs, regardless of content. I certainly hope that that isn't the case- can anyoen more locally situated confirm?

lc said...

Macro Man:

Can't speak for all blog spot posts, but last time I was in China was late June. I was able to get to Econbrowser and your site. I remember because I pulled off your post regarding the slow down in Chinese RMB apprecation earlier this year.
I did discover that sometimes the link would be really slow and some links had to be retried couple of times. However, most of the English sites I typically access were allowed.

HZ said...

I don't detect any sinophobia, and I have no intention of defending Chinese policies -- though I can often see rational reasons for the policy evolution. I think Anderson's FEER article has a pretty balanced picture.

Gabor said...

Hi MM,
it would be nice to see those figures not in geographical breakdown, but OECD/OPEC breakdown or resource countries/consumer contries/producer countries breakdown.
(Consumers are US, UK, Eastern Europe, Producers: SE Asia, Germany, Japan, Resource: Saudi, Canada, NZ, OZ)